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Fastenal Vending Machine Installation, Cost Saving Bode Well

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On Mar 21, we issued an updated research report on Fastenal Company (FAST - Free Report) – a national wholesale distributor of industrial and construction supplies.

The company is boosting sales performance at stores through additional sales support and vending machine installations. The company’s cost-saving initiative, Pathway-to-Profit, also bodes well.

Meanwhile, shares of Fastenal outperformed the Zacks categorized Building Products - Retail/Wholesale industry in the past six months. Also, analysts’ expectations have been trending upward. The current quarter has seen two upward estimate revisions in the past 60 days, while full-year estimates have seen five upward revisions over the same time frame. As a result, the current quarter and year consensus estimates moved north, justifying the company’s Zacks Rank #2 (Buy).



What’s Driving FAST?

Fastenal has adopted FAST Solutions, an industrial vending process that has the potential to revolutionize the industrial distribution system and increase profitability. Industrial vending is one of the primary growth drivers for the company. In fact, the company is optimizing its vending machines to drive signings and boost efficiency.

Also, in order to increase profitability, the company has gradually grown from a fastener distributor to a full-line industrial supplier. It has expanded its product lines to include an internal manufacturing division, government sales, Internet sales, metalworking and industrial vending.

The Pathway-to-Profit program is also encouraging. Under this, the company focuses on increasing the average store size which leads to better earnings leverage by spreading operating costs over higher sales and thereby driving pre-tax margins.

However, unfavorable product mix and the on-site rollout continue to exert pressure on margins. Lack of inflation, strong emphasis on growing average store sales, pricing and competitive pressure are hurting gross margins. Overall, gross margin in 2016 dropped 80 basis points from the 2015 level.

Nonetheless, management believes that the recent improvement in margins (improved 50 bps sequentially in fourth quarter) on non-fasteners, a higher mix of sales of exclusive brands and better purchasing will continue to offset the ongoing headwinds. Additionally, recent increases in steel and other commodity prices add to the positives.

Other Key Picks

Investors may consider other favorably ranked stocks in the Retail Wholesale sector like BMC Stock Holdings, Inc. , Bob Evans Farms, Inc. and Darden Restaurants, Inc. (DRI - Free Report) .

BMC Stock sports a Zacks Rank #1 (Strong Buy) and is expected to witness 52.9% growth in 2017 earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bob Evans, a Zacks Rank #2 stock, surpassed earnings in all of the past four quarters, the average beat being 12.5%.

Darden, also a Zacks Rank #2 company, is expected to witness 11.2% growth in fiscal 2017 earnings.

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